WTO Negotiations on Improving Food Aid

By Susanne Jaspars and Chris Leather, Oxfam GB

Susanne Jaspars was the team leader for Oxfam's emergency food security and livelihoods team from October 2002 to June 2005. She has worked in emergency nutrition, food security and livelihoods since 1987 for a number of agencies and has published widely on the subject. Susanne continues to support Oxfam's food aid advocacy work on a consultancy basis.

Chris Leather is the current team leader for Oxfam GB's emergency food security and livelihoods team. He has worked in emergency food security and livelihoods since 1987 for Action Against Hunger and now Oxfam.

This article details current negotiations in the World Trade Organisation (WTO) on improving the effectiveness and efficiency of food aid, based on research undertaken by Oxfam GB.

The last months of 2005, and 2006, provide unprecedented opportunities to shape the future of food aid. Negotiations at the World Trade Organisation (WTO) on agriculture in 2005 include a review of food aid disciplines, which will influence the review of the Food Aid Convention (FAC), postponed pending the WTO outcome. WTO rounds are only launched once every 15 years or so, and the Food Aid Convention was last revised in 1999. The final WTO ministerial meeting is in December 2005, but negotiations are on-going until then. This article presents some of the issues, and Oxfam's position, on the disciplining of food aid under the WTO. Others who have put forward suggestions or concerns on the WTO food aid disciplines include the Coalition for Food Aid (CFA) in the US, WFP, World Vision International (WVI) and the European Commission (EC). This article is intended to stimulate discussion, and to provide the starting point for developing a common NGO position on the WTO food aid disciplines.

The WTO negotiations on food aid are of relevance to NGOs operating on the ground, because these negotiations could change the way in which food aid is provided. Heated discussion is taking place around the role of tied food aid, monetisation, and the role of local purchase (see box for key terms used and key actors involved). Any change in these aspects will affect ration size and composition, the speed of delivery of emergency food assistance, as well as potential impact on production, markets and trade. The emergency nutrition community should have an input in this debate.

Current practice on the tying of food aid

Tied food aid is defined as "..aid which is, in effect, tied to the procurement of goods and/or services from the donor country and/or a restricted number of countries". In 2004, 74% of food aid was tied aid, 12% were triangular transactions (purchase in neighbouring countries) and 14% were local purchases. Australia, Canada, China, and South Korea provided over 80% tied aid. The US provided 56% of food aid commodities by volume, of which 99% were tied or sourced in the US. Other donors collectively sourced 42% in the donor market1.

For the first time in half a century, there are serious, high level discussions in the US and Canada for, at least, the partial untying of food aid2. Earlier this year, the US government proposed to reduce PL480 Title II food aid by £300 million (a quarter of the budget) and establish an International Disaster and Famine Assistance account of equivalent value, "to permit USAID to provide food assistance in the most timely and efficient manner to the most critical emergency situations". This proposal appears to be headed for defeat in Congress, as it ran into fierce opposition from agricultural and shipping interests. The CFA, a coalition of US NGOs, proposed a pilot programme that would only go forward if Congress appropriated extra money for food aid3.

What are the consequences of tied aid?

It makes it difficult to meet the minimum standards on food aid

The Sphere minimum standards on food aid state that to meet nutritional needs, general rations must provide access to a range of foods, access to micro-nutrients, and eliminate the need for affected people to adopt negative coping strategies. Food items must be appropriate and acceptable to recipients, and can be used efficiently at household level. Furthermore, the introductory section to the food aid chapter states that, "food commodities are imported only when there is an in-country deficit or no practical possibility of moving available surpluses into the disaster affected area4."

Whilst tied aid is not the only problem in ensuring that minimum standards are met, it makes it more difficult for the following reasons:

It takes up to 4-5 months for food purchased in the US to arrive in the recipient country. If people are totally dependent on food aid in the early stages of an emergency, this can lead to high rates of malnutrition, mortality, and the adoption of damaging coping strategies.

Commodities are not always culturally appropriate, so disaster affected populations may not know how to prepare the foods.

Rations may be nutritionally inadequate, as they are often dominated by cereals. Pulses, oil, and blended foods are notoriously difficult to resource.

Foods are often unprocessed or unfortified, which means that disaster affected populations have to make their own arrangements for milling of cereals.

Food aid recipients are more likely to sell unfamiliar food commodities to buy other foods (as well as to buy other basic items, and to pay for milling), making tied food aid an inefficient way of meeting food needs.

It is an inefficient method of providing food aid

Tied aid is a very inefficient way of providing development assistance. The cost of tied direct food aid transfers is, on average, 50% more than local purchase, and 33% more costly than procurement of food in third countries5. Untying food aid would lead to a saving of approximately $750 million6.

Tied food aid can have negative impacts on markets and trade

There is strong evidence that food aid displaces commercial imports in recipient countries. In markets that are relatively open, food aid imports result in the displacement of other commercial imports. Demand is therefore reduced for commercial imports. Food aid has been found to be associated with long term increases in imports by beneficiary countries of commodities supplied as US food aid7. Late arrival of food aid in country may mean it arrives during harvest time, and therefore lowers market prices and the income of farmers. This may increase vulnerability and the need for on-going assistance.

The form of food aid which has the most direct trade implications is programme food, which is aid provided as budget support, for example in the form of concessional sales. It is direct bilateral (government to government) aid. Programme food aid provided by the US has the explicit objective of creating overseas markets.

Is tied food aid needed for development projects?

There are two types of project food aid. First, projects which use food aid for direct distribution to beneficiary groups, such as food for work, maternal and child health, school feeding and the establishment of strategic grain reserves. Second, commodities are sold (monetised), and the local currency is used to promote poverty reduction and food security initiatives. In 2002, about half of all project food aid, channelled through NGOs, was monetised. There is a lack of monitoring and evaluation of project food aid, but findings on the impact of project food aid range from moderately positive to extremely negative.

Food aid that is monetised is not targeted at those most in need and is, therefore, more likely to have negative impacts on markets. Furthermore, NGOs monetise food aid to be able to fund development projects, which is an extremely cumbersome and inefficient way of funding development programmes.

The role of local purchase

When food aid is available in other parts of the disaster affected country, or in neighbouring countries, local purchase could potentially provide a quicker and cheaper response, as well as providing commodities which are more culturally acceptable to the affected population. In addition, it would support the local economy. A computation of the statistical correlation between nations' annual per capita production of cereals with that of their neighbours found that there was the potential for expanding triangular transactions8.

Local purchase must be preceded by careful assessment of local markets, to make sure that this does not lead to price increases for consumers in the areas where the food purchased. In some situations, local purchase may be difficult because of limited suppliers, quality of the local products, trader reliability, or weak transport and infra-structure.

The role of WTO in reforming food aid

Currently, food aid is not subject to tight disciplines under the WTO Agreement on Agriculture, and rules governing food aid are not subject to dispute settlement. The Food Aid Convention has not been effective in regulating the provision of food aid, as it lacks a binding enforcement mechanism and dispute settlement body. New disciplines on food aid through the WTO, a widely accepted international legal instrument, could have the advantage of providing a well established adjudication process and will facilitate legitimate food aid, while restricting the abuses of food aid. The current negotiations about the revision of the WTO food aid disciplines, therefore, provide a unique opportunity to improve the way in which emergency food aid is provided. A potential drawback, however, is that the WTO does not have institutional expertise in food aid.

Oxfam's position on these issues

Oxfam International has recommended stronger food aid disciplines as part of the WTO agriculture agreements. The recommendations are as follows:

Food aid is provided exclusively in grant form (i.e. no food aid sales on a concessional basis).

Food aid should not be linked, either explicitly or implicitly, to commercial transactions or services of the donor country.

The use of in-kind food aid (some of which can be sourced in donor countries) should be limited to situations of acute local food shortage and/or non-functioning local food markets, where regional purchase is not possible. In other situations, food aid should be provided in cash form, to purchase food locally or regionally.

Monetisation of food aid should be limited and replaced with cash donations, to avoid displacement of local production or commercial imports.

Food aid should only be provided in response to calls from national governments, specialised United Nations agencies, other relevant regional or inter-governmental agencies, non-governmental humanitarian organisations, and private charitable bodies.

All food aid transactions must be notified in a timely manner to the Food and Agriculture Organization of the United Nations (FAO) and WTO.

Oxfam believes that food aid is most needed in humanitarian crises, and that the objective of giving food aid in a crisis situation should be to alleviate malnutrition, to meet immediate food needs and to protect livelihoods. Oxfam also believes that the value of project food aid (food for work, school feeding, vulnerable group feeding) to support specific poverty alleviation and disaster prevention activities is limited, and that this should be discouraged as part of longer term development projects. Food aid can be useful in development contexts as part of social safety nets and livelihood protection and recovery in slow onset disasters. In most cases, cash based programmes or funding for development programmes is a more effective way to address food insecurity. Food aid cannot be a substitute for sustainable development, policy and belief change, which together can reduce hunger in the world in the longterm.

In many humanitarian disasters, cash is a more appropriate response to meet people's food needs than food aid. Cash transfers (cash grants, cash for work, or vouchers) should be provided to meet food needs in situations where food crisis is a problem of people's ability to purchase food, and not of food availability. Providing cash to meet food needs is only possible where food markets are functioning and accessible.

Sourcing of food aid, in order of preference, can therefore be summarised as follows:

Key terms, regulations, and players in international food aid

Emergency food aid: the distribution of general food rations, supplementary and therapeutic feeding, to meet the food needs of emergency affected populations.

Project food aid: development projects which use food aid to food security and which have a number of other non-food related objectives. Projects include food for work, school feeding and vulnerable group feeding through MCH clinics.

Programme food aid: aid provided as budget support, for example in the form of concessional sales. It is direct bilateral (government to government) aid.

Monetisation of Food Aid: the sale of food aid commodities on the market. The local currency is then used to fund development projects.

Tied food aid: Aid which is tied to the procurement of goods and/or services from the donor country and/or a restricted number of countries.

In kind food aid: Imported food aid, which can be tendered on international markets.

Food Aid Convention (FAC). Convention aimed at guaranteeing a predictable flow of food aid every year. The signatories made minimum annual commitments. The FAC was developed in 1967, and is periodically updated with the latest version agreed in 1999. The FAC was scheduled to be re-negotiated in 2002, but has been put on hold pending action on food aid disciplines at the WTO. The 1999 FAC sets minimum aggregate commitments at 5.5 MT, whereas originally minimum commitments were set at 10 MT.

Coalition for Food Aid (CFA). Established in 1985, a Washington based lobby group that represents 14 US NGOs.

US Public Law 480 (PL 480). Originates from 1954 with three 'titles', each facilitating different kinds of food aid; title I and II are explained below. Title III has not been used recently.

Title I provides 'programme' food aid to recipient governments. Most Title I food aid is provided in the form of concessional sales, rather than in grant form. Title I is administered by USDA and has a strong emphasis on expanding US export markets. All Title I food aid is monetized. This is the type of food aid most likely to be eliminated under WTO, but only forms a minority of overall food aid.

Title II is administered by USAID, and provides for the donation of US agricultural commodities to meet emergency and non-emergency food aid needs. NGOs, the WFP, and governments are eligible for Title II food aid. As much as 70 per cent of non-emergency project food aid is monetised by NGOs or recipient governments to fund development projects.

Note that there are four other US food aid programmes, three of which are administered by USDA, including food for progress and the McGovern-Dole International Food for Education and Child Nutrition Programme.

What is the way forward?

Recommendations on food aid disciplines would be much more powerful if they were the result of a shared NGO vision on the role of food aid.

Oxfam acknowledges some of the concerns expressed by other agencies on the disciplining of food aid. Oxfam are aware that the US CFAhas recommended that none of the forms of food aid should be excluded or limited in WTO Doha Round Negotiations (i.e. the current negotiations), but that the WTO should focus on the one aspect of food aid related to trade interests. . In contrast, the EC recommends the elimination of all tied food aid, to be replaced by more flexible response mechanisms, in other words to promote the local purchase of food aid . Oxfam recognise that the majority of food aid is currently provided in tied form, and that the food aid provided in many emergencies is currently insufficient to meet the estimated needs. Tied food aid cannot be reduced substantially overnight.

Any reduction in tied aid would need to be accompanied by cash resources to purchase at least an equivalent amount of food aid. The lower cost of local purchase would, however, mean that the funds required to purchase an equivalent amount of food aid locally would be much lower. Furthermore, the emergency sector currently do not have the market assessment tools, nor the capacity, to carry out local purchases on the scale that would be required, if the new disciplines are adopted. The recommendations for new disciplines would need to be phased in gradually. We hope that this short article can be the starting point for developing a common NGO vision.

10 Levinson, E. Executive Director for the Coalition for Food Aid (2005, June 13). Letter to Portman, United States Trade Representative, Office of the President. Put on congressional record on 16 June 2005.